New guidance issued to protect vulnerable customers

25 February 2021   By Dr Lucy Brown, Editor

Guidance from Financial Conduct Authority (FCA) is designed to instruct firms how they should treat vulnerable customers.

The document is split into six sections including how customer service should work for customers and how communications to customers are made.

It also lays out seven distinct areas where vulnerable customers may be more disadvantaged.

Debt charity StepChange have responded positively to the guidance, although they point out it has limited statutory impact on the rights of consumers.

fca logo on mobile
Credit: Piotr Swat/

Treating vulnerable customers fairly

The FCA split their guidance in six separate categories to help companies understand their responsibilities to customers:

  • Understanding customers' needs
  • Skills and capability
  • Product and service design
  • Customer service
  • Communications
  • Monitoring and evaluation

These are designed to cover the full customer experience, so firms know the markers of vulnerability and what risks those lead to, allowing them to create appropriate systems now and review those systems in the future.

On customer service, for example, companies are instructed to set up their processes in a way that allows vulnerable customers to disclose their needs and ensures the firm is equipped to spot signs of vulnerability.

This is particularly important as research in the energy sector back in 2019 concluded many customers do not label themselves as vulnerable, meaning companies need to take that extra step and identify them.

Characteristics of vulnerability

In the guidance, the FCA remind firms they should be aware of the different characteristics of vulnerability related to four key areas:

  • Health
  • Life events
  • Resilience
  • Capability

Companies are also reminded these characteristics are likely to be complex and overlapping, so someone dealing with a major life event such as a bereavement may also have low financial resilience or mental health problems.

The guidance identifies seven distinct examples of harm and disadvantage companies should be aware of:

  1. Financial exclusion
  2. Difficulty accessing services
  3. Disengagement with the market
  4. Inability to manage a product or service
  5. Over-indebtedness
  6. Buying inappropriate products or services
  7. Scams and financial abuse

A recent example of vulnerable customers being encouraged to take potentially inappropriate services is the set of Klarna ads banned in December for implying borrowing could boost the mood of those struggling due to the pandemic.

Protecting the vulnerable

Debt charity StepChange issued a press release in response to the FCA's guidance, saying they strongly support the principles behind the guidance.

However, they do point out there is little statutory bite to the guidance, and they would prefer to see protections for vulnerable customers embedded in legislation as well.

Without this, they believe there is a danger that customers will continue to be exploited by firms, and a lack of stringent monitoring means companies may not truly put the guidance into action.

Financial resilience has been in the spotlight recently, with StepChange warning in November that 2.87 million people were at high risk of falling into long-term debt problems due to Covid-19.

Citizens Advice published their own data on customers in energy debt in December, showing an extra 600,000 households were in arrears on their energy bills compared to pre-pandemic levels.

The FCA's Financial Lives survey data released earlier this month found the number of UK adults unable to handle a financial shock had risen to 27%, with 3.5 million extra adults pushed into this category since the beginning of the pandemic.

Customers struggling with debt may want to read our guide on the debt support available.

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